Kelowna city council has approved a plan to sell the assests of its electrical utility to FortisBC Inc.
At its meeting Monday, council approved what is formally known as its electrical utility restructuring opportunity’s asset purchase agreement with the energy company.
It also approved using the controversial alternative approval process to seek voter approval for the deal. The process puts the onus on those opposed to gather enough signatures (10 per cent of the electorate) to force a vote on the deal.
“For the future citizens of Kelowna and their kids, this is a great investment,” said Coun. Andre Blanleil.
Mayor Walter Gray called it “great value and low risk,” and noted with the assets in Fortis’ hands, the company will pay taxes to Kelowna, something that does not happen now with the city owning them.
The agreement will pave the way for the city to implement what the city says is an opportunity to shift Kelowna from its current role as electrical utility owner to a new role as an investor.
The deal would transfer its electrical utility assets to FortisBC for $55 million and use the proceeds from the transfer to buy shares in FortisBC’s parent company, Fortis Inc. subject to approval by B.C.’s Inspector of Municipalities. The city currently contracts Fortis to plan, operate and maintain the utility and another company to handle customer billing.
The deal will also require approval of the B.C. Utilities Commission.
But council was warned the provision under the legislation that would allow the deal has not been used in 25 years and the agreement was not “a done deal.”
The agreement was developed through a two-year process that began with the city deciding its existing electrical utility business model was not sustainable.
Financial returns to taxpayers under the current model—$2.1 million per year—are vulnerable to different pressures, says the city, in particular changes in the wholesale price of electricity, future capital spending on system infrastructure and increases in operating and maintenance costs.
The transfer of Kelowna’s electrical assets to Fortis, combined with an investment of the $55 million, will provide taxpayers with long-term, annual returns that are expected to meet or exceed the earnings possible under the current model, says City Hall.
The need for such returns was a driving principle in its negotiations, it added.
The city initially wanted to invest the money it would make on the deal in FortisBC bonds and that was announced in July when staff first reported its plan to council.
Last month, however, the city determined an investment in Fortis Inc. common shares would bring a better return.
“Using conservative estimates, the investment of the city’s proceeds in Fortis Inc. shares would be expected to generate annual earnings for taxpayers that would increase from $2.1 million to $4.5 million over 30 years,” said John Vos, the city’s general manager of community services.
The city hired the accounting firm of Deloitte and Touche to review the agreement. In its report, the firm said it felt the purchase price was fair.
Currently, one-third of Kelowna electric customers use the city’s utility and two-thirds use Fortis. That was one of the reasons why Fortis was selected to negotiate with, said city staff Monday.
“This is one of the biggest win-wins for Kelowna in many years,” said Gray.
The deal requires the approval of Kelowna electors, so rather than hold a vote on its merits, the city will use the the alternative approval process, a type of negative option billing where the city says it plans to proceed unless enough people say no.
The process is now underway and runs until Oct. 26. The transfer will be considered approved if fewer than 10 per cent of electors sign objection petitions. If approved, the deal will close March 28, 2013, prior to B.C.’s switch back to the PST from the existing HST.
To learn more about the proposed deal, go to kelowna.ca/cityprojects. The city also plans to hold two open houses on the deal prior to the end of the alternative approval process.
Since 2000, FortisBC has worked with Kelowna as the city’s electrical contractor in planning, operating and maintaining municipal electrical utility assets. The company also provides electricity through its own utility to all parts of the community that are not served by the city, and provides natural gas services throughout the entire municipality.